Africa: Rwanda Still Second Easiest Place to Do Business in Africa

25 October 2019

Rwanda has kept its second position on the continent in the World Bank's annual Doing Business indices.

According to the Doing Business 2020, the country is among a few economies in Sub-Saharan Africa that improved their business climate in the year that ended on May 1, 2019, ranking just behind Mauritius in Africa.

Globally, Rwanda ranked 38 and scored 76.3 points against 100, representing a drop of nine positions from last year's edition when the country ranked at 29 globally.

The World Bank says Rwanda implemented three reforms over the past 12 months of review on getting electricity, starting a business and dealing with construction permits.

They include exempting newly formed small and medium-sized enterprises from paying the trading license tax for their first two years of operation, as well as reducing the time to obtain water and sewage connections. It also improved building quality control by requiring all construction professionals to obtain liability insurance on buildings once in use.

Rwanda Development Board (RDB) also says they improved reliability of power supply by upgrading its power grid infrastructure and claims procedure and reduction of court fees reduced.

It attributes the drop in global ranking to the change in methodology. The World Bank started assessing "active stock exchange" as part of the indicators in the report.

According to the World Bank, for an economy to be seen as having an active stock market, it has to show at least 10 companies listed and trading equities.

Clare Akamanzi, RDB's Chief Executive Officer, said in a statement that while they "acknowledge this year's Doing Business Report, we note with great disappointment the abrupt change in methodology," which has affected Rwanda's global rankings negatively.

Nevertheless, the country is ranked among the region's economies that performed best in the areas of starting a business and getting credit. Three regional countries - Rwanda, Kenya, and Zambia - ranked among the world's top 10 in the latter category.

On average, it now takes around 20 days and costs 33.5 per cent of income per capita to start a new business in the region, substantially faster and less expensive than the 62 days and 305 per cent of income per capita it took in 2003, the report indicates.

According to the report, Rwanda performed better on getting credit, registering property, and starting a business where it scored above 90 points, as well as on getting electricity and paying taxes where it scored above 80 points.

Currently, it takes only seven days, three procedures and just 0.1 per cent of property value to register a property in Rwanda.

Similarly, the country has eased ways of getting credit information and strengthened the rights of borrowers and lenders as well as protection of secured creditors' rights, among other things, making it easier to access credit.

It only takes four days and zero cost to start a business in Rwanda.

The country also performed well on trading across borders and dealing with construction permits, scoring above 70 points on each aspect.

For instance, it takes less than four days and less than $200 for exporters to comply with border rules, and it requires less than two days and $110 for documentary compliance.

The study is the 17th in an annual series that evaluate regulations enhancing or constraining business activity for small and medium-size enterprises.

Business-friendly environments are associated with lower levels of poverty, and improved regulatory efficiency can stimulate entrepreneurship, startups, innovation, access to credit, and investment.

What needs improvement?

Rwanda scored less than 50 points on the aspect of protecting minority investors, pointing to the need for improvement.

This indicator measures the strength of minority shareholder protection against misuse of corporate assets by directors for their personal gain, among other things.

On 'enforcing contracts' indicator, which measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes, it takes more than seven months (230 days) to resolve a commercial dispute and costs 64.4 per cent of claim value.

The country could borrow a leaf from Singapore (where it takes 120 days) and Bhutan (where it costs only 0.1 per cent).

Continental outlook

Sub-Saharan Africa made the most business reforms. Economies of the region enacted 73 reforms in the year under review, down from a record high of 108, and the number of countries implementing at least one reform fell to 31 from 40.

The regional average ease of doing business score was 51.8 on a scale of 0 to 100, below the OECD high-income average of 78.4 and the global average of 63.

Countries like Togo, Nigeria and Kenya are ranked top improvers with the most reforms, with Cabo Verde and Eswatini implementing a record of four reforms. Other countries that improved are Zimbabwe, Democratic Republic of Congo, Gabon, Niger, and Senegal.

World Bank Group President, David Malpass, said that governments can foster market-oriented development and broad-based growth by creating rules that help businesses launch, hire and expand.

"Removing barriers facing entrepreneurs generate better jobs, more tax revenues, and higher incomes, all of which are necessary to reduce poverty and raise living standards," he said in a statement.

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